'Margins from orthopaedic implants not as high as considered'

New Delhi, Aug 10: With the government mulling price capping on orthopaedic knee implants, a study claims that the margins from orthopaedic implants are not as high as other medical devices due to high cost involved in managing the supply chain.

The study, released on Thursday, contends that manufacturers operate at low gross margins of 30-40 per cent compared to the figure of 300-350 per cent given by the National Pharmaceutical Pricing Authority (NPPA). The net margins are even lower post the additional high costs incurred in managing the supply chain, it observes.

"Orthopaedic implants operate differently from other medical devices and each surgery requires additional costs for instrumentation, inventory and equipment support, specific to that implant and investments are required for doctor training for these sophisticated implants," said the study conducted by IMS Health.

IMS Health is a leading global information and technology services company providing clients in the healthcare industry with end-to-end solutions.

Earlier this month, the government announced plans for price capping for orthopaedic knee implants in view of, what it called, "the higher margins by hospitals and distributors". Earlier, it placed similar price capping on cardiac stents.

According to NPPA, the price of the total knee system at the maximum was Rs 65,781, which eventually becomes Rs 4,13,059 when the margins of the importers and distributors are considered.

According to the study, additional cost as for equipment support for surgeon, high inventory costs, and training of the surgeon and specialised sales force are the major factors.

"Specific instruments sets are provided as case support for every surgeon. This also covers logistical costs of cleaning, storage sterilisation and transportation of instruments for covering hospitals," said the study.

The study says that the prices of orthopaedic implants, including knee and hip systems, in India are one of the lowest in the world.

Typical mark-up across the value chain is 130-140 per cent that means if the landed cost is Rs 100, then MRP is Rs 230-240. This mark-up of 130-140 per cent is split across manufacturer, distributor and hospital.

"Manufacturers and distributors have a share of 25-30 per cent each and hospitals have a share of 40-50 per cent," said the study.

The study opined that given there are multiple costs involved in managing the value chain of a medical device, these mark-ups seem reasonable. Since the orthopaedic implants manufacturers are already operating at low net margins, further price reduction would make it difficult for these companies to operate.

Commenting on the government's move, another body named Medical Technology Association of India (MTaI) said the MRP of the implant highlighted by government as 4,13,000 is used in rare cases, where the original implant has failed and a revision procedure needs to be carried out.

"These implants are expensive and have limited volumes of manufacturing globally, require a large inventory as well as advanced instrumentation," said MTaI.